Two new risk management tools for pasture, rangeland and perennial forage will be tested in select areas of the country beginning with the 2007 crop year. The Rangeland Insurance programs are primarily designed to protect against drought — covering grazing land and perennial hay production.

These insurance products are designed to operate in a variety of range and pasture environments using innovative technology to determine when a producer has suffered a loss.

The Rainfall Index insurance program and the Vegetation Index insurance program are offered and subsidized by USDA's Risk Management Agency (RMA). The products are available through approved insurance providers. These programs will provide livestock producers the ability to purchase risk protection for losses of forage grazing or hay.

“The RMA has been working for a long time to provide subsidized coverage for livestock producers similar to what crop farmers have enjoyed for decades,” says Max Thomas, of Silveus Insurance Group, Lubbock, TX. “And this is the first time RMA has rolled out a program that offers a buy-up, low-deductible coverage for rancher's basic crop which is grass and hay.”

The insurance programs are based on one of two different indices, depending on the state or region where the rangelands are located. The indices are the Rainfall Index and the Vegetative Index.

Both of these products are presently available for sale from crop insurance agents through the closing date of Nov. 30, 2006.

Rainfall Index Pilot

The Rainfall Index program will be pilot-tested in 220 counties in Colorado, Idaho, North Dakota, Pennsylvania, South Carolina, and Texas. It's based on rainfall indices as a means to measure expected production losses.

This policy is similar to other Group Risk Plan (GRP) policies. Rather than provide coverage based on county yields, however, coverage is based on rainfall in grid areas of 12 by 12 miles. The smaller area allows policies to provide more localized, specific coverage. A producer's Actual Production History (APH) is not used for this program.

Producers with qualifying acreage are covered for a reduction in the grid's index, an average of the precipitation data within that grid. A Rainfall Index policy is intended for those producers whose acreage tends to follow the average rainfall patterns for the grid. Producers are not required to insure all qualifying acreage in a grid.

While other GRP programs use National Ag Statistics Service data for rating and determining county yields, the Rainfall Index policy uses average precipitation data provided by the National Oceanographic and Atmospheric Administration (NOAA) — the same data used to create the Palmer Drought Index. This precipitation data is used for rating and for determining grid indices.

Coverage is purchased the calendar year before the crop year begins and is provided in multiple producer-selected insurance periods called Index Intervals. An Index Interval is a two-month period. Producers select the appropriate Index Intervals for their operation by asking themselves, “When do I need rain on this parcel?” Their answer tells them which Index Interval(s) they should purchase to mitigate their risk.

The policy indemnifies the insured in the event the Final Grid Index falls below the insured's Trigger Grid Index (the insured's selected coverage level). The Federal Crop Insurance Corporation (FCIC) issues the Final Grid Index when the Index Interval ends. Payments on the corresponding Index Interval will be issued to insureds that are owed a loss.

Because this plan is based on grid precipitation data from NOAA and not on individual production, the insured may have low rainfall in a grid and still not receive an indemnity.

Vegetation Index Pilot

The Vegetation Index insurance program will be pilot-tested in 110 counties in Colorado, Oklahoma, Oregon, Pennsylvania, South Carolina, and South Dakota and is based on satellite imagery that determines the productivity of the acreage as a means to measure expected production losses.

This policy is also similar to other GRP policies; however, rather than providing coverage based on county yields, coverage is based on the vegetation density experience in grids of 4.8 by 4.8 miles. The smaller area allows policies to provide more localized, specific coverage. A producer's APH is not used for this program.

Producers with qualifying acreage are covered for a reduction in the grid's index, an average of the vegetation density within that grid. A Vegetation Index policy is intended for those producers whose forage production tends to follow the average vegetation growth for the grid. Producers are not required to insure all qualifying acreage in a grid.

The Vegetation Index program uses Normalized Difference Vegetation Index data provided by the Earth Resources Observation Systems (EROS) — the same satellite imagery and capabilities used by NASA. This vegetation density data is used for rating and determining grid indices.

Coverage is purchased the calendar year before the crop year begins, and is provided in multiple producer-selected insurance periods called Index Intervals. An Index Interval is a three-month period. Producers select the appropriate Index Intervals by asking themselves, “When do I need my forage to be green in this grid?” Their answer tells them which Index Interval(s) they should purchase to mitigate their risk.

The program indemnifies the insured in the event the Final Grid Index falls below the insured's Trigger Grid Index (the insured's selected coverage level). The FCIC issues the Final Grid Index when the Index Interval ends. Payments on the corresponding Index Interval are issued to insureds that are owed a loss.

Because this plan is based on grid “greenness” data from EROS and not on individual production, the insured may have poor vegetation growth in a grid and still not receive an indemnity.

Maximum flexibility/options

Together, these pilot programs will be available to provide coverage on approximately 160 million of the 640 million acres of grazing land and hay land in the U.S. Development of the two programs was provided through provisions of the Agricultural Risk Protection Act of 2000, which established the development of a pasture, rangeland and forage program as one of RMA's highest research and development priorities.

Thomas says the premium for either product depends on the amount of risk a producer is willing to assume — but that there's a premium plan to fit just about any budget. He says he's calculated premiums ranging from 15¢ to $2.14/acre from the highest level of risk in the more productive areas to the lowest risk in lesser productive areas.

“The bottom line is the more risk the producer is willing to assume, the more the government will subsidize the premium,” Thomas says. “It also depends on when you want the insurance to kick in during the crop year.”

The insurance indemnity gives producers more options from a management standpoint. For example, it provides additional cash flow to:

  • Buy more feed.

  • Lease alternative pastureland.

  • Pay leases when herds have been culled to very low levels.

  • Restock herds once the drought is over.

More detailed information about these two new pilot programs is available on the RMA Web site at: http://www.rma.usda.gov/policies/pasturerangeforage/.